Colorado Innovative Motor Vehicle Credit: How to Qualify

The Colorado Innovative Motor Vehicle Credit is a state tax incentive designed to lower the ownership cost for residents who purchase or lease specific environmentally friendly vehicles. This program encourages the adoption of new electric and plug-in hybrid vehicles by providing a direct reduction in a taxpayer’s state income tax liability. The credit is available for vehicles placed in service within Colorado and serves as part of the state’s broader environmental goals.

Vehicle and Purchaser Eligibility

To qualify for the credit, both the vehicle and the person acquiring it must meet specific state requirements. The vehicle must be new at the time of purchase or lease, be properly titled and registered in Colorado, and be a four-wheeled vehicle with a gross vehicle weight rating (GVWR) of 8,500 pounds or less. It must also be capable of speeds of at least 55 miles per hour and be propelled by an electric motor with a battery of at least four kilowatt-hours (kWh) that can be recharged from an external source.

A restriction on vehicle eligibility is the manufacturer’s suggested retail price (MSRP). For any purchase or lease made after July 1, 2023, the vehicle’s MSRP cannot exceed $80,000. The manufacturer’s suggested retail price used for this cap does not include destination charges or optional items added by the dealer.

The purchaser or lessee must be a Colorado resident who acquires the vehicle from a licensed dealer or agent within the state. The credit is available to individuals, estates, trusts, and C corporations for each qualifying vehicle they obtain. For vehicles acquired by a partnership or an S corporation, the credit is passed through to the individual partners or shareholders. Eligibility is determined by the date the purchaser or lessee takes physical possession of the vehicle, as this is when the transaction is considered complete.

Calculating the Credit Amount

The value of the Innovative Motor Vehicle Credit is a predetermined flat amount that changes based on the year the vehicle is purchased or leased. For vehicles purchased or leased between July 1, 2023, and December 31, 2024, the credit is $5,000. The credit amount decreases to $3,500 for vehicles acquired in calendar year 2025.

An additional credit may be available for certain vehicles. For tax years starting on or after January 1, 2024, an extra $2,500 credit is allowed for qualifying vehicles with an MSRP under $35,000. Eligibility for this bonus is determined by the vehicle’s MSRP as listed by the manufacturer, not the final sale price.

The credit is not influenced by the vehicle’s battery size, as long as it meets the minimum four kWh capacity requirement. The calculation is straightforward and does not require complex formulas based on vehicle attributes beyond the purchase year and MSRP. If the total credit amount for which a taxpayer qualifies exceeds their state income tax liability for that year, the excess amount is refunded to the taxpayer, making it a refundable credit.

Required Information and Documentation

Before filing for the credit, taxpayers must gather specific documents and information related to their vehicle purchase or lease. The purchase or lease agreement from the dealership is a primary document, as it contains details needed for the tax forms. This includes the vehicle’s Vehicle Identification Number (VIN), the date the vehicle was placed in service, and the total purchase price or lease information.

The main document for claiming the credit is the Innovative Motor Vehicle Credit form, officially designated as DR 0617. This form is available for download from the Colorado Department of Revenue’s official website. Taxpayers must complete this form using the information from their purchase or lease agreement. Key fields on the DR 0617 include the VIN, the date of purchase, the vehicle’s make and model, and the MSRP.

The completed DR 0617 requires the taxpayer to enter their personal information, confirm the vehicle meets all eligibility criteria, and calculate the credit amount. This completed form becomes a necessary attachment to the annual state tax return.

How to Claim the Credit

Once the DR 0617 form is completed, the taxpayer has two primary methods for claiming the credit. The first approach is to claim it on their annual state income tax return. To do this, the taxpayer must attach the completed DR 0617 to their Colorado Individual Income Tax Return (Form 104). The credit amount is then entered on the corresponding line of the Tax Credit Schedule (Form 104CR), which summarizes any credits being claimed.

Alternatively, a purchaser or lessee can assign the credit to the motor vehicle dealer or financing company at the time of sale. This option provides an immediate financial benefit, as the value of the credit is typically applied as part of the down payment. For tax years 2024 and 2025, an additional credit of $600 is allowed if the purchaser or lessee assigns the entire allowable credit to a financing entity or motor vehicle dealer.

When the credit is assigned, the dealer or financing entity is responsible for submitting the required documentation to the Department of Revenue. The purchaser who assigns the credit is not required to file a Colorado income tax return just to claim it. The dealer must compensate the buyer for the full value of the assigned credit.